If there’s one thing I truly detest about being a business owner, it’s dealing with numbers. Honestly, I hate numbers. They fill me with visceral dread. I’m an intelligent, independent woman, yet I can only wrap my head around basic maths some days. Don’t ask me why. I managed to get a B in my GCSE maths with the aid of a tutor and have abhorred it ever since.
So when it comes to doing things like accounts and taxes, I have a girl I outsource all that shit to, so I don’t have to deal with it or think about it. My OH handles my payroll, PAYE, pension payments, and all that jazz.
However, there is one part of the numbers in business that I pay very close attention to, and that is profit. Knowing how much profit you’re making in your business is a good barometer for success. It’s also, if we’re honest, the name of the game.
If we weren’t in this to earn a living, we’d be running charities, not businesses. And there’s no shame in that. Being self-sufficient and supporting yourself, your home, your kids, paying your bills, buying pretty shoes, going on holiday… these are all things that make life liveable, fun, and rewarding.
There’s a tendency among business owners, however, to confuse profit with profitability, particularly when it comes to things like their website and marketing. This is not the best way to run a business. The result can be a marketing strategy and website that seems profitable but, in reality, costs far too much compared to the revenue it generates.
So how do you ensure your website and marketing are profitable? Here’s a quick look at profitability vs profit from a known arithmophobe…
Profit Vs. Profitability
Your website and marketing efforts are unavoidable business expenses. And when calculating profits, you naturally subtract marketing and website expenses from your revenue along with your other costs. As long as you’re making a profit, everything’s good.
Well, kinda. As business owners, we always need to ensure we have more revenue coming in than expenses going out. This can be challenging, particularly in the first couple of years of business. But that’s the goal. Make more than you spend.
The money you have left after expenses is your profit. Understanding profit is simple (even for me): Revenue – Expenses = Profit. Understanding profitability, however, can be more challenging. It is, however, essential to fully understand your profitability to make sound financial decisions for your business.
This is particularly true when it comes to your website and marketing; just how much should you be spending on them?
First, let’s be clear on the difference between profit and profitability.
While profit is how much your business gains after expenses, profitability is a means of judging the success or failure of your business based on your profits. Rather than an absolute number, it’s usually reflected as a percentage or sometimes a decimal. So, in a year, your business might earn £2K profit. That is an absolute number. But the company’s profitability might be, as an example, 20% if you’re using your profit margin as an example, and your total revenue for the year was £10K.
You can easily calculate your profit margin: First, do Revenue – Costs. This gives you profit. Now, calculate Profit / Revenue and multiply by 100.
Knowing you’ve made back 20% of what you spent, you can judge if the effort involved was worth the reward received. A 20% profit margin is generally good. However, if that were 5%, you’d need to look at ways of increasing your profitability to make the business successful.
Profitability In Marketing
So far, we’ve been discussing your business’s overall profit and profitability. While that’s vitally important to your big picture, from a marketing perspective, it’s also essential to know how profitable your marketing campaigns are. How profitable is your website?
In other words, how much profit are you making compared to how much you’re spending to make it?
These are metrics that should be easily trackable for any marketing campaign. You should be able to track all your sales (be they of products or services) and have a clear idea of the origin of each. Was it a website sale as a result of organic traffic? A social media buy directly from your Insta? Do someone purchase from a newsletter campaign or PPC Ad?
Ensuring you are tracking the origin of your sales is a significant first step to measuring your success and, specifically, your profitability. If you still need to get systems in place to track sales results from your marketing efforts accurately, that should be a top priority.
How do you know if it’s worth running a campaign if you don’t know how many sales it’s generating?
For example, let’s say you’ve been blogging consistently, once a week, for the last year. You outsource your blog to a copywriter, who ensures everything is optimised for search, and you have an SEO agency working on your on-site and off-site SEO to get you ranking on SERPs.
You know your copywriter is doing their job because you see the blogs go up each week, and they’re a great read. You’re thrilled with them. And you know that they’re ranking because the SEO report you get from your agency each month tracks their performance while also showing you that the agency is doing a good job.
Cracking. It’s worth continuing with both.
How much money have you generated in that year due to organic traffic?
If you don’t know that, it doesn’t matter how well you’re ranking in SERPs or how great your blog posts are; you have no way of knowing if this is proving to be a successful marketing strategy.
If, on the other hand, you can clearly say that you’ve generated £20K in revenue as a result of organic search traffic and spent £12K on your copywriter and SEO agency. That gives you a 40% profit margin for your organic search campaign.
Pretty darn good.
But what if you spend that £12K and only generate £12K in sales? Your profitability for that campaign is 0. So all that effort was for nothing. And while your business may show a profit overall and even have high profitability, that specific campaign cannot be considered a success.
You can see knock-on value if you’ve repurposed your blog posts on social media or used them for your newsletter. But in deciding if that organic campaign was a success or failure, you can see it was the latter.
Making Sure Your Marketing Is Profitable
There are two ways business owners fuck up when it comes to the profitability of their marking campaigns:
- They look at the profit they have made in their business or their overall profitability and decide it is too low. They assume this is because their marketing is unsuccessful, so they stop or change their strategy without looking at the profitability of individual marketing campaigns.
- They see that their business is making an overall profit or has high profitability and continue doing the same things in their marketing, assuming they are successful. Again, they don’t look at the profitability of individual marketing campaigns.
The problem with either approach is that you’re judging the success or failure of one element on your overall business success.
Your marketing might suck, but you have a highly charismatic MD who is constantly out and about schmoozing target businesses or the local community, and as a result, you generate a ton of revenue from their interactions and networking. Your marketing costs more than it’s generating, but you don’t notice because you’re still making a profit overall.
It’s essential to be aware of this to reassess your marketing efforts and get the money you’re investing in marketing working for you. Sure, your business is currently profitable, but imagine how much more profitable it would be if your marketing were giving you a 20% return on the money you’re now wasting.
Conversely, your marketing may be kicking ass and taking names all over the place, but you’ve overextended yourself by moving into a big new warehouse, and you’re not pricing your stock to ensure a minimum profit on each item. As a result, your physical premises are costing you a fortune, and you’re under-pricing products, so your business is making low profits. Or worse, it’s running at a loss.
Stopping or changing marketing that’s proving very successful will only worsen this situation. Your marketing is where the money is coming from. The issue is that you are hamorrhaging money elsewhere. Plug those holes. Tighten your expenses by downsizing and raising your prices, so you’re consistently earning at least a fixed minimum on everything sold. Suddenly all your marketing efforts are leading to the sale of items that are correctly priced to ensure profitability, and you’re not draining resources paying for a warehouse that’s largely empty.
Ensuring Your Website Is Profitable
While your website is part and parcel of your marketing efforts and acts as the hub of all your marketing online, it’s essential to consider it as a separate entity when it comes to profitability.
What function does it serve?
Is it there purely to act as your online presence and drive people to contact you so that you can make a sale? Or is it actively capable of selling things for you?
In other words, can you directly generate income from your website by selling products or services or by other means like advertising space?
Many businesses have highly successful websites that cannot directly sell anything. There are no products to buy, no services to book, nothing that can be done without speaking directly to a real-life person. You’re still generating revenue through your website, which is why people are finding you and calling, but the website itself doesn’t contribute to your revenue streams.
And this is a mistake. It could easily do both.
When you’re going to so much effort and expense to drive organic traffic, you want to maximise the rewards of that traffic for your business. Sure, you may be content with how much you earn from sales, but we’re talking about profitability, remember?
How much does your website cost you annually? How much did it cost to build? How much do you spend on hosting, maintenance, updates, etc.? These costs are deducted from your annual revenue to calculate your profit.
But where do they fit into your marketing campaigns? Where are they in the calculations determining if your marketing is profitable?
Unless you don’t run multiple marketing campaigns, or you’re simply lumping everything into a single category to calculate profitability, they don’t.
Your website costs are left out of the profitability equation entirely. Unfortunately, this means you have yet to learn if your website is profitable.
To be clear, you don’t know if the physical website has generated more revenue than you have spent having it built and maintained.
But surely, if marketing campaigns are profitable, your website must be, right? Well, not necessarily. If you’re running a PPC campaign, for example, and it utilises the infrastructure of the platform you’re running them on to generate sales, your website isn’t involved at all. Form fills on a Facebook form, for example, have nothing to do with your website. Instead, audience data enters a database on a system – either automated or managed by you contacting each person directly.
Similarly, is it still profitable if you recalculate the success of your organic search campaign by factoring all the expenses associated with your website (design, build, copy, SEO)? Again, it makes a difference even if you split those expenses over years and various times running campaigns.
Usually, a massive difference if your website isn’t generating any money in its own right.
When you start to consider ways to monetise your blog, or make your website a revenue stream all on its own, this changes.
Consider adding advertising space and earning money hosting PPC ads for other companies. This isn’t right for many brands as they don’t want to detract from their products and services, but it might be a good fit for you, particularly if you have more of a lifestyle or entertainment brand.
What about affiliate marketing? Are there products and services that naturally get mentioned in your website content that could be linked to an affiliate program? For example, if you recommend a particular coach, author, or trainer, do they have an affiliate program you can join that gives you a percentage of any sales they make due to your mentioning them? Alternatively, if you reference a lot of books or recommend household items, consider the Amazon Affiliate program as a means of earning from any sales made based on your recommendations.
Another way to ensure your website is as profitable as possible is to add passive income streams. For example, you can create digital products you sell directly through your site. In addition, you could set up a membership group for clients and customers to talk in or take advantage of training.
There are many ways to track the profitability of your marketing and website. You don’t have to use all of them. Instead, I suggest you pick a single means of measuring profitability (for example, profit margin) and stick to it. Which you choose will depend on your preference and business model – you may find some are more relevant to what you do than others.
Go for the one that makes the most sense for you.
Once you’re clear on the numbers, look at how you can improve those numbers. If you’ve run the numbers and your marketing operates at a loss, your first task is fixing that!
Even if your marketing is already profitable, what can you do to increase that profitability? How can you ensure your website is generating its own income to – at the very least – cover the costs of building and maintaining it? If you’re struggling to answer this question, or need help with marketing or building and managing your website, get in touch (I’m basically an all-in-one copywriter, SEO agency and website development company!).
Leave A Comment